Supplier Segmentation and Rationalisation

Supplier segmentation groups suppliers by value, risk and dependency so that governance effort is proportionate to each relationship. It also reveals duplication or concentration that may need rationalisation, while keeping contracts and relationships focused on end-to-end consumer outcomes.

• Assess criticality and substitutability first, then consider spend value and innovation potential alongside them. Agree inputs, outputs and acceptance criteria so the next participant can act without avoidable clarification.
• Choose a governance approach for each segment and review duplication and concentration risk, documenting decision rights and escalation paths where several functions or suppliers contribute.
• Do not segment by spend alone. In the article's example, a low-spend specialist is treated as strategic because its unique component is essential to a critical service. The owner records the assumption and when it will be checked.
• Measure governance effort by segment, supplier concentration risk and rationalisation benefit as a set, agreeing baselines, naming data owners and reviewing trends with providers and consumers.
• Avoid reducing supplier count without resilience analysis and applying strategic governance to commodity providers. Make assumptions explicit, identify early warning signals and give someone authority to intervene, treating the work as an evidence-led learning loop.